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Problems between Micron and UMC have been brewing for some time and have mainly to do with the theft of Micron intellectual property by former employees who then share it with UMC and through it, with Chinese partners. This is not an isolated case and not the first time that this happened.

This time, Micron’s former employees J.T. Ho, a process-integration engineering lead and Kenny Wang, a process-integration and device-section manager, copied DRAM process secrets in memory sticks and turned the information over to UMC when they joined the company. They then started recruiting other former Micron employees with the intention of making chips based on the technology.

Micron ties this up with UMC’s JV with Chinese chipmaker Fujian Jinhua Integrated Circuit Co., which is in the process of equipping a fab in Jinjiang that will employ a UMC-provided 32nm process to run first silicon in the third quarter of 2018. The proposed fab, which isn’t government-owned but government sponsored, will make 60K wafers per month (wpm).

This is significant on a number of levels. The first significance is with respect to DRAM prices and therefore, profits. After Micron’s purchase of troubled chipmakers like Rexchip, Inotera and Japan’s Elpida Memory, the DRAM market is almost totally owned by Korean players Samsung and Hynix and America’s Micron.

This has led to very stable and strong pricing for the three and allowed them to generate good profits. But if technology leaks to Chinese players, they can flood the market with cheaper DRAM and bring down prices. On the positive side, the process leak is on the trailing edge side, so the damage may be limited, especially if Micron can continue to innovate. On the negative side, it will be very hard to bring trade embargo against stolen property as a legal remedy (as is usually done) because China is itself one of the largest consumers of chips.

It is also significant for Taiwan as the country’s entire economy is dependent on its foundries, so intellectual property protection is an important piece of the deal. The Taiwanese government generally frowns upon any deal making with Chinese companies because Taiwan is much farther along in technological progress. Such deals are only allowed for trailing edge technologies when there are cost advantages for Taiwanese chip companies. Transfer of intellectual property or key technologies to China would mean loss of business for Taiwan as the Chinese can take over the entire market with cheaper products.

Micron is currently expected to survive because its R&D remains ahead of the pack.

Apple Makes Tax Deal with EU

Apple has agreed to pay Ireland nearly $14 billion in back taxes although the amount will be deposited in an escrow account opened for the purpose until a resolution of the matter (both Apple and Ireland are appealing the decision). The problem arose because Apple opened two Irish subsidiaries that controlled its European operations (so all European business was taxable only in Ireland). It also had an arrangement with the Irish authorities to pay virtually no taxes in Ireland.

The Irish government agreed to the deal in order to attract investment to the country. The EU disputes that Ireland has a right to do this at the scale that it did under EU law. It is also an anticompetitive practice given that other companies operating in Europe have to pay taxes and therefore make lower profits than Apple. Tim Cook has reportedly dismissed the issue as “total political crap.”

YouTube Remix Set for March 2018 Launch

Google is preparing to launch yet another music streaming service. The company launched the audio-only Google Play Music in 2011, following that up with the paid service YouTube Music Key in 2014 that ultimately became YouTube Red in 2016. Red was a disappointment for music labels since it wasn’t devoted to music alone but instead focused on YouTube original video.

So this time around, YouTube is having a hard time convincing music labels that it will deliver the goods. It has brought in former Warner Music executive Lyor Cohen to head its music operations and that’s what likely led to the decision to launch Remix, a Spotify-like on-demand streaming service that will also incorporate elements like video clips that are more like YouTube. The company has reportedly already reached out to artists to promote the new service, although it is yet to sign on Sony, Universal and Merlin (a consortium of independent labels). Warner is already on board, it seems.

Qualcomm Snapdragon Tech Summit

At the Snapdragon Tech Summit in Maui, Hawaii, Qualcomm announced its Snapdragon 845, a highly integrated piece of hardware, marrying the CPU, the baseband modem, a digital signal processor, and an image processor for photos and videos, as well as the required additional circuitry. It is therefore expected to improve speech recognition and photography, while making the most of artificial intelligence, and combining both hardware and software resources. The goal is of course to support the creation of devices from multiple OEMs so they can function the way the iPhone does and make up for the business lost at Apple.

With the Apple relationship souring, Qualcomm is going all out to rope in other partners. At the event, Qualcomm announced hardware partners like Microsoft, HP and Asus, all of which will launch new laptops and hybrid 2-in-1 devices powered by Qualcomm’s Snapdragon 835 processor with 20+ real-world, always-on hours of battery life and Qualcomm’s Snapdragon X16 Gigabit LTE modem which can provide 1Gbps speeds on compatible cellular networks.

The laptops will have the power to run practically all Windows applications despite the longer battery life. They may, however, have some limitations for gaming purposes. But Qualcomm’s stated goal is to blur the difference between laptops and phones by making laptops more like phones.

Ticker

Price Change Last Week

Price Change Last 6 Months

AAPL

-1.8%

+16.4%

FB

+1.5%

+20.6%

GOOGL

+2.1%

+9.1%

MSFT

-0.3%

+20.6%

INTC

-3.7%

+21.3%

CSCO

+0.5%

+20.4%

AMZN

-1.0%

+20.5%

Corporate

Apple, Google, Facebook at China Internet Event: Technology leaders were well represented at China’s annual state-run World Internet Conference held at Wuzhen, a historic canal town outside Shanghai. The Chinese government has so far stuck to its policy of censoring the Internet and keeping foreign services such as Facebook (FB - Free Report) , Google search and Twitter (TWTR - Free Report) at bay.

It has also banned some media output, games and movies, while tightening rules so citizens are unable to circumvent the restrictions through private virtual private networks (VPNs). Apple, which manufactures its devices in the country, has a bit more leverage than the others, but it has always toed the line in China. So finding something to praise the government for was difficult, but all the company reps managed.

Toshiba-WDC Could Settle: Unconfirmed news reports say that Toshiba and Western Digital have come to an understanding that more or less settles the problems between them. Accordingly, the agreement requires Toshiba to extend its current joint venture agreement (set to expire in 2021) with Western Digital to its Yokkaichi fab, which entails allowing investments from WDC and supplying it with NAND chips. In return, WDC will withdraw arbitration proceedings against Toshiba allowing it to sell the business to a Bain-led consortium that also includes WDC customer Apple and competitors Seagate and Hynix.

Separately, Hong Kong-based activist investor Argyle Street Management Ltd, a hedge fund with $1.2 billion under management, has told Toshiba that with the latest cash infusion, it doesn’t need to sell the business to the Bain-led group any longer. Reuters reports that Argyle is in conversation with at least three other investment funds to block the sale. It is also inviting the more than 30 overseas investors that took part in the latest funding round to raise $5.3 billion.

Amazon Enters Australia: Amazon has dipped its feet into the Australian retail market with the opening of a massive warehouse on the outskirts of Melbourne and corporate offices in Sydney, Melbourne, Perth, Brisbane and Canberra. The positioning of the warehouse will enable Amazon to offer quick delivery to nearly four-fifths of the population. However, at launch, its offerings are limited and prices not always the lowest.

This isn’t a winning formula in a market where around 90% of the population is connected and accustomed to transacting online. Its delivery partner is also limited to state-owned Australia Post. The thing about Australia is that it is very sparsely populated in most places. So delivering to remote areas can be tricky and expensive. That’s what Amazon is likely figuring out at the moment.

Yelp Out of Favor: Piper Jaffray analyst Sam Kemp has said that he’s losing confidence in Yelp, which depends on Google, Facebook and others for a third of its traffic. He also feels that shortening attention spans along with crisp and improving reviews especially for things like restaurants and spas on these rival sites could lead people to move away from the typically longer format reviews available on Yelp. He therefore downgraded the shares to Underweight, sending shares down.

Legal/Regulatory

Australia to Probe Facebook, Google: In the wake of the evolving media landscape wherein news is increasingly consumed through digital channels rather than in print form, the Australian government is attempting to bring the Broadcast and Content Reform package. With the promotion of media diversity and support for media jobs as key government imperatives, it has invited the Australian Competition and Consumer Commission (ACCC) to scrutinize major digital distribution platforms like Google and Facebook to determine if they are adversely impactingconsumers, content creators or advertisers. The ACCC’s first report is not expected until December 2018, with the final report taking another six months.

Alibaba Lawsuit Over IPO: Holders of Alibaba’s American Depository Receipts are suing the companyover the deliberate concealment of a meeting on July 16, 2014, two months before its $25 billion initial public offering, in which China's powerful State Administration for Industry and Commerce threatened huge fines if Alibaba failed to suppress counterfeiting.

Earlier in June 2016, Chief Judge Colleen McMahon of the Manhattan District Court dismissed the nationwide lawsuit, because Alibaba had mentioned it under regulatory risks in its IPO materials. But this prima facie ruling (that doesn’t go into the merits of the case) says that the matter should have been treated as “highly material” to investors. As such, the case has returned to and has sent it back to Judge Colleen McMahon.

Products/Technology

Apple Pay Cash in iOS 11.2: If you’re using a device running on iOS 11.2, you can use it to make peer to peer payments, much the way you would use Venmo or Square Cash. It’s a convenient way to make payments between devices running the latest of Apple’s operating systems, so it could be something of a headache for the platform agnostic services.

Particularly because unlike the Apple service, the apps have to be separately downloaded. At the same time, their neutrality will likely help them grow despite the share loss to Apple. The company is also offering Apple Pay Cash to its WatchOS 4.2 users, so they can ask Siri to do the honors.

Apple Supplier Quanta Making AR Displays: Apple supplier Quanta (for its Watches and Macs) has a new licensing deal with Israeli company Lumus, that makes the core display components for augmented reality (AR) glasses. Lumus technology embeds multiple prisms into a single sheet of glass such that the size and breadth of images increase even as the thickness of the glass sheet does not. Other complexities such as those related to low-light conditions also have to be handled.

Because of the complexities involved, Apple’s Tim Cook has earlier said that we are years away from high quality AR, but since Quanta is an Apple supplier, speculations can’t be contained. It’s expected that the deal will enable the company to offer significantly higher volumes of AR glasses at a cost of $1,000 or less by 2019. C.C. Leung, Quanta’s vice chairman, said recently that it was part of an AR glass project and that he had “studied the optical technologies that AR devices have needed since two years ago”.

Firefox Moves Back to Google Search: With the launch of Firefox’s new Quantum browser, the company has moved back to Google search as the default. The company had earlier contracted with Yahoo to use its search service as the default and that agreement is in force until 2019. So Yahoo owner Oath (after its acquisition by Verizon) has sued the company for breach of contract.

Now Firefox has countersued, citing a clause in the agreement that allowed it to terminate the contract if Yahoo was considered unacceptable for some reason. The rub for Yahoo (and Oath) is that it is required to keep making annual payments of $375 million through 2019 in lieu of the contract even if Mozilla doesn’t use it as a default.

YouTube Moved from Amazon Devices: "We've been trying to reach agreement with Amazon to give consumers access to each other's products and services," a Google spokesperson said in a statement. "But Amazon doesn't carry Google products like Chromecast and Google Home, doesn't make Prime Video available for Google Cast users, and last month stopped selling some of Nest's latest products. Given this lack of reciprocity, we are no longer supporting YouTube on Echo Show and FireTV. We hope we can reach an agreement to resolve these issues soon."

Part of the problem is also related to the way Amazon is using hacked versions of Google apps rather than working with Google to build suitable apps for its devices. This not only cuts out features from its services, but also makes it difficult for Google to monetize its services. So beginning on Jan 1, 2018, Google will remove YouTube support for all Amazon devices.

Amazon Prime Video on Apple TV: A day after Google pulled its services from Amazon devices, Apple announced that the Amazon Prime video app was now available for Apple TV. So Apple TV customers will now have access to Amazon’s original content and licensed TV shows, though it isn’t clear yet if this means that Apple TV devices will now be available on Amazon.

Amazon requires rivals to offer Amazon Prime video in order to be sold on its online shopping platform. Apple, Google and Amazon all make competing hardware and are investing in original and licensed programming. But Amazon has made the most progress and Apple the least (at least as far as content is concerned).

NVIDIA Titan V: NVIDIA has announced the world’s fastest graphics processing unit (GPU) to bring machine learning capabilities to the desktop. Driven by the Volta GPU architecture, it delivers 110 teraflops of performance, or 9X the comparative model from Nvidia's previous architecture, the Titan XP, which was announced in April.

Over the years, NVIDIA has positioned the Titan brand to mean cutting edge, so it represents the best of its capabilities. Moreover, recent revamping of the Volta architecture has made it much more energy efficient, so Titan V can manage double the workload at the same power as Pascal.

M&A/Collaborations

Nintendo-NVIDIA Deal in China: Nintendo has, for the first time agreed to make popular titles such as The Legend of Zelda: Twilight Princess, New Super Mario Bros. Wii and Punch-Out!! available through NVIDIA Shield, which went on sale on Dec. 5 in mainland China. The deal, which is a deviation from its policy of offering its games only on its own devices, is limited to NVIDIA and China. The company has said officially that it remains in negotiations with Chinese authorities to launch its own device in the country.

Other consoles like Microsoft’s Xbox and Sony’s PlayStation have also not done very well, because the Chinese government generally clamps down on extremely violent or sexually explicit content, which is what sells the best, which is a pity because China’s gaming market generated $24.6 billion in revenue last year, even more than the $24.1 billion gaming generated in the U.S.

Alphabet Investment in Lyft: Lyft is getting a boost from its illustrious partner Alphabet, which is leading an investment round to raise $1.5 billion (revised up from an earlier decision to raise a billion dollars). The funding valued the company at $11.5 billion, still well behind competitor Uber’s $68 billion. Other than Alphabet’s investment fund CapitalG, Fidelity Management & Research Company and Ontario Teachers' Pension Plan are participants along with returning investors AllianceBernstein, Baillie Gifford, KKR, Janus Henderson Investors and Rakuten. The company raised $600 million in May.

Alibaba-Ford: Ford and Alibaba have signed a multi-faceted three-year deal that will see them collaborating more closely to sell Ford cars in China. They will also explore opportunities to work together on technology including cloud computing for big data analysis, digital marketing services through its Alimama subsidiary and using its AliOS operating system.

Other subsidiaries will also play a role as required. It’s possible that Alibaba’s Next Retail strategy, which is basically an omnichannel approach, will also play a key role because car buying generally involves a research phase and a test drive phase, so both online (better for research) and offline (better for experiencing the car) aspects are important.

Some Numbers

Apple Airpod Shipments: Renowned Apple analyst Ming Chi Kuo of KGI Securities has said that he expects Apple to ship 13-14 million units of its Bluetooth headphones (AirPods) in 2017. He also says that supply constraints prevented Apple from selling more this year, but that the number would double to 26-28 million units next year as Apple now has a new assembler in China called Luxshare. The expected launch of a new charging case that will allow users to charge them wirelessly, along with an iPhone and Apple Watch may also increase its popularity, according to the analyst.

Apple Smartphone Share: Kantar Worldpanel ComTech has released estimates for iPhone sales for the three months ended Oct 2017 and the numbers understandably show some market share losses. This year, the iPhone 8 wasn’t a big jump from the iPhone 7 while the more expensive and radically changed iPhone X was just around the corner. So customers were most likely delaying their purchase until they had checked out the iPhone X. Android was the major gainer, especially in the U.S. and the U.K. Urban China was the most interesting where iOS grew and Android shrank regardless.

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